USA Monthly Leading Economic Index: Double Dip Recession or Bottom Bouncing? (Chart)

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Is the USA Economy Bottom Bouncing?

Monthly Leading Economic Index: Double Dip Recession or Bottom Bouncing?

This is the third post of a three part series reviewing the overall USA economy and what the economic trend might be: 1) a  rebound upwards with continued growth, 2) a dip into another recession, or 3) a stagnant, bottom bouncing near zero growth economy. First, the USA quarterly GDP was reviewed and charted and a downward trend noted. Second, the ECRI Weekly Leading Index was reviewed and charted and a bottom bouncing trend was noted. Third, below, the TCB Monthly Leading Economic Index is reviewed and a leveling off, perhaps topping out is noted.

Three time frames have been reviewed: the BEA quarterly GDP, the TCB monthly Leading Economic Index, and the ECRI Weekly Leading Index.

Below is a chart of the latest 24 months of The Conference Board monthly Leading Economic Index, from August 2008 through the latest month reported, July 2010. As can be seen, the LEI bottomed in March 2009 (same as USA stock market), ascended significantly through May 2010, and now has leveled off, perhaps even peaking. Concomitant with this LEI peaking action has been the quarterly GDP growth slowing, as reviewed and charted here, in a previous post, "USA Q2 GDP Revised Downward to 1.6% (Chart)". As with the declining 2010 Q2 GDP of +1.6%, the LEI does appear to be at a crossroads: a continuing upwards trend and renewed GDP growth, continued leveling off, or a  topping out and decline with GDP following downwards?

The 24-month moving average of the LEI is 103.5, which the July value of 109.8 (preliminary) is well above and has not been below since August 2009. The 12-month moving average of the LEI is 107.3, which the LEI has not been below since December 2009. The LEI is showing continued strength.

USA Economy: Double Dip Recession or Bottom Bounce?

Data courtesy of The Conference Board

Links
USA Economic Weekly Leading Index: Double Dip Recession or Bottom Bouncing? (Chart) BoomDoomEconomy
USA Q2 GDP Revised Downward to 1.6% (Chart) BoomDoomEconomy
S&P 500: Another Death Cross Arrives (Charts) MatrixMarkets
Full Recovery Could Take Decade or More: Economist CNBC
Morici: Trade Deficit Causes Jobless Recovery CNBC
The Conference Board TCB


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USA Economic Weekly Leading Index: Double Dip Recession or Bottom Bouncing? (Chart)

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Is the USA Economy Bottom Bouncing?

Weekly Leading Index: Double Dip Recession or Bottom Bouncing?

The media, economists, analysts, bloggers, et. al. have been noting this summer that the ECRI Weekly Leading Index for the USA economy dropped during this spring and summer. This, of course, is a negative trend and would ultimately be reflected in the USA GDP.

Below is a chart of the latest 12 months of ECRI Weekly Leading Index, from September 2009 through the latest week reported, August 20, 2010. As can be seen, the WLI peaked in late April 2010, declined significantly, and now appears to be bottom bouncing. Concomitant with this WLI decline has been the GDP growth slowing, as reviewed and charted here, in the previous post, "USA Q2 GDP Revised Downward to 1.6% (Chart)". As with the declining 2010 Q2 GDP of +1.6%, the WLI does appear to be at a crossroads: a continuing downwards trend towards zero growth, continued bottom bouncing,  or a bounce upwards from here?

The 13-week, 26-week, and 52-week moving averages of the WLI are 121.5, 126.2, and 127.7, respectively. The current WLI of 120.9, which is below all 3 of these moving averages. The WLI peaked at 134.7, for the week ended April 30, 2010. The plunge seen on the chart below then occurred.

USA Economy: Double Dip Recession or Bottom Bounce?

Data courtesy of ECRI

Links
USA Q2 GDP Revised Downward to 1.6% (Chart) BoomDoomEconomy
S&P 500: Another Death Cross Arrives (Charts) MatrixMarkets
Economic Cycle Research Institute ECRI


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USA Q2 GDP Revised Downward to 1.6% (Chart)

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Is the USA Economy Bottom Bouncing?

USA Q2 GDP Revised Downwards to 1.6%

The Bureau of Economic Analysis released their Second Estimate of 2010 Q2 GDP which was +1.6%, down -0.8% from the Advanced Estimate of +2.4%. Consensus estimate of economists was +1.4%, so this was considered a "beat" of the estimate and the markets reacted accordingly - equities up, bonds down. However, a "not as bad as estimated GDP" is no victory as the margin of a +0.2% "beat" is tenuous at best.

A +3.0% annualized GDP growth rate is generally accepted as the minimum necessary to generate jobs  growth. Therefore, the USA is growing at approximately 50% of the rate necessary to bring down the unemployment rate. The Big Question is where is the USA economy headed? Three scenarios are being much discussed: 1) a double dip recession is imminent therefore GDP will turn negative soon, 2) the economy will continue this "bottom bouncing" with very slow growth which may adversely affect the unemployment rate (i.e., < +3.0%), or 3) the bottom is in and GDP growth will accelerate and happy days will be here again.

As one economist noted, it was as if the USA economy hit an invisible wall by June 2010. Q1 GDP per the Bureau of Economic Analysis was +3.7% which was enough to create jobs and reduce the unemployment rate. Now the Q2 GDP is estimated at less than half at +1.6% and is not considered a GDP that reflects a robust recovery. Of the three scenarios mentioned in the previous paragraph, the first two (double dip recession or bottom bouncing) seem the most likely onwards into 2011.

Below is a chart of the latest 16 quarters (4 years) of USA GDP as reported by BEA from 2006 Q3 through 2010 Q2 in Table 2. Contributions to Percent Change in Real Gross Domestic Product. As can be seen, there was a negative dip into the Great Recession beginning 2008 Q1, a rebound peaking with the 2009 Q4, a downward trend in 2010 Q1 and Q2. The 2010 Q2 GDP of +1.6% is the same as the 2009 Q3 GDP. The USA economy, based on this chart, does appear to be at a crossroads: a continuing downwards trend towards zero growth or a bounce upwards from here?

The 16-quarter average (4 years) is +0.49% per quarter, which is a stalled economy, a flat economy that is not producing jobs and has an increasing unemployment rate. The moving 4-quarter average (1 year) is +2.98% which is a break-even economy on jobs, perhaps creating a few jobs but is not robust.

USA Economy: Double Dip Recession or Bottom Bounce?

The Bureau of Economic Analysis Commentary on the 2010 Q2 GDP of +1.6%

"The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, personal consumption expenditures, exports, federal government spending, private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased."

"The deceleration in real GDP in the second quarter primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending."

Links

USA Economic Weekly Leading Index: Double Dip Recession or Bottom Bouncing? (Chart) BoomDoomEconomy
S&P 500: Another Death Cross Arrives (Charts) MatrixMarkets
Bureau of Economic Analysis GDP Press Release (August 27, 2010)

Bureau of Economic Analysis GDP Full Release & Tables (August 27, 2010) PDF download

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